If I had a board of directors, they would have fired me in 2018.
Until then we charged the industry standard, a 1% annual fee.
Then I changed our fees and cut our revenue by 66%. WTH was I thinking!?!?
“Skate to where the puck is going to be, not where it’s been.”
– Wayne Gretzsky
THE 1% AUM FEE WILL DIE
The explosion of robo-advisor started it 10 years ago. You can now have your portfolio managed professionally for 0.25%.
So why would ANYONE pay 4 TIMES that if all your guy/gal does is manage your money?
More people are waking up to this realization which is why Wealthfront has grown from $33M to $23B – as in billion – in assets under management in only 11 years.
Investment management will continue to be commoditized and all of those 1% financial advisors are going to be scrambling when no one will (over)pay for investment management.
And that’s why Financial Zen only charges 0.25% (with no account minimums).
WHAT ABOUT FINANCIAL PLANNING?
Now, the “good” financial advisors charge 1% to manage money AND do financial planning.
Unfortunately, financial planning is VERY time-consuming. So those 1% advisors need a certain amount of revenue to keep their margins intact. Their solution is account minimums.
To work with a high-touch, holistic financial advisor they’ll have a $1M account minimum. At a 1% AUM fee that’s $10,000 per year in fees.
WHAT IF YOU DON’T HAVE $1M?
If you’re 30 years old, you probably don’t have a $1M to meet their account minimums, so you’re left flapping in the breeze.
Changing our fee structure to was my solution to this problem.
Charging a flat monthly fee to gain access to financial planning (…and coaching…and accountability), allows us to work with all those young professionals that haven’t saved their millions yet.
WHY CHARGE 66% LESS?
But paying $833/month ($10k annually) doesn’t fit into anyone’s mental subscription map.
So I needed to make our membership fee in line with other monthly expenses. Our current membership fee of $275/mo is less than most car payments and only slightly higher than a cable bill.
When I updated the monthly fees, I got virtually zero pushback, so I think we hit the nail on the head.
HOW WE GOT TO PROFITABILITY
The only problem was our margins.
Our industry average is a 30% profit margin.
Couple that with charging 66% less than the industry average and you’d expect a 10% margin, which is exactly what I got… until last year.
Last year, we started meeting with our members monthly instead of quarterly. Yes, we 3X’d our meeting frequency.
Okay, seriously what’s wrong with me?
But here’s the thing… that shift actually REDUCED our time spent per member.
More frequent conversations require less planning, following up and chasing down.
(It also has the added benefit of a better member experience AND added coaching and accountability to the mix.)
After 12 months of iterating, our margins have grown from 10% to 80% while delivering more value than ever before.
NEVER BEEN HAPPIER TO BE BOOTSTRAPPED!
I’m pretty sure outside investors would never have had the patience to wait out all of the changes I’ve executed over the last 5 years.
And that’s why I’ll never take outside investment. In order to keep adding value to our members in unorthodox, experimental ways, I can’t be reporting a board of directors.
Denting the universe (or at least the financial planning industry) requires autonomy.
